IRS Releases COBRA Guidance

The Internal Revenue Service has posted a collection of answers to frequently asked questions about the new health benefits continuation subsidy, and the U.S. Labor Department has put more subsidy information on its Web site.

A provision in the new American Recovery and Reinvestment Act requires the federal government to pay 65% of the premium costs for laid-off workers’ Consolidated Omnibus Budget Reconciliation Act health coverage continuation benefits for up to 9 months.

The subsidy is available to all workers eligible for COBRA continuation benefits who have been let go for economic reasons since Sept. 1, 2008.

The subsidy provision already has taken effect for some workers and March 1 for others, and employers and benefits services vendors have been scrambling to learn how to implement the subsidy program.

In the guidance, the IRS answers questions about how employers can collect reimbursement for the 65% COBRA eligibility through tax returns.

Some of the IRS advice:

- Self-insured employers that are subject to COBRA must participate. Self-insured employers can treat the 65% of the premiums that laid-off employees do not pay as a payment of payroll taxes.

- An employer can collect the subsidy either by offsetting its payroll tax deposits or by claiming the subsidy as an overpayment at the end of the quarter.

- If an employer ends up with a negative tax figure as a result of billing the government for the COBRA subsidy payments, the employer can apply the negative amount to the next return or ask for a refund.